Cal. State Bar Formal Opn. No. 2006-170 — Charging Lien in Contingency Fee Agreement

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THE STATE BAR OF CALIFORNIA
STANDING COMMITTEE ON
PROFESSIONAL RESPONSIBILITY AND CONDUCT
FORMAL OPINION NO. 2006-170
ISSUE: Must an attorney comply with rule 3-300 when entering into a contingency fee agreement
that contains a provision for a charging lien?
DIGEST: The inclusion of a charging lien in the initial contingency fee agreement does not create
an “adverse interest” to the client within the meaning of rule 3-300 of the California
Rules of Professional Conduct. Unlike a charging lien in an hourly case, the charging
lien is a natural corollary of the contingency arrangement. This conclusion is not
intended to discourage lawyers from conforming to the standards established in rule 3-
300 in their contingency agreements.
AUTHORITIES
INTERPRETED: Rules 3-300 and 4-200 of the Rules of Professional Conduct of the State Bar of
California.
Business and Professions Code section 6147.
STATEMENT OF FACTS
Attorney agrees to represent Client as a plaintiff in a personal injury suit arising from an automobile accident.
Attorney and Client enter into a written contingency fee agreement providing that Attorney’s fee will be 33% of
Client’s recovery if the suit is settled before trial, and 40% of the recovery if settled after trial commences.1/ The
contingency fee agreement complies with all of the requirements of Business and Professions Code section 6147.
The agreement also provides for Attorney to have a lien on any settlement or judgment Attorney recovers for Client.
Attorney does not advise Client to consult independent counsel prior to consenting to the fee agreement.
I. Contingency Fee Agreements
The negotiation of an original fee agreement is an arm’s length transaction. (Setzer v. Robinson (1962) 57 Cal.2d
213, 217 [18 Cal.Rptr. 524]; Cooley v. Miller & Lux (1909) 156 Cal. 510, 524 [105 P. 981].) However, as a contract
drafted by the attorney, its provisions are strictly interpreted against the attorney and any ambiguity is interpreted in
favor of the client. (Alderman v. Hamilton (1988) 205 Cal.App.3d 1033, 1037 [252 Cal.Rptr. 845].) Within these
parameters, “the attorney is entitled to negotiate the terms on which he would accept employment as he wished . . .
absent issues of duress, unconscionability, or the like.” (Ramirez v. Sturdevant (1994) 21 Cal.App.4th 904, 913 [26
Cal.Rptr.2d 554].)
In California, contingency fee agreements are permitted for the pursuit of most civil claims and are generally
favored because they allow access to the courts by persons who might otherwise have no opportunity for redress due
to lack of resources to pay an attorney.2/ Studies have demonstrated that contingency fee representation is an
1/ We do not address in this opinion the impact of changes to the initial fee agreement or issues related to
structured settlements. See, e.g., Cal. State Bar Form. Opn. No. 1994-135 [structured settlement of personal injury
case creates conflict of interest requiring compliance with rule 3-300 when original agreement is silent on whether
attorney’s fees would be “front loaded” in the event of a structured settlement.]
2/ Fracasse v. Brent (1972) 6 Cal.3d 784, 792 [100 Cal.Rptr. 385, 390] [“The client may and often is very likely
to be a person of limited means for whom the contingent fee arrangement offers the only realistic hope of
establishing a legal claim.”]

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important vehicle for access to justice.3/ In California State Bar Formal Opinion No. 1987-94 and again in Formal
Opinion No. 1994-135, we observed that the California Legislature “has made entering into a contingency fee
contract . . . exempt from the effects of conflict of interest rules because of public policy.” The long-standing
California rule mirrors the ABA Model rules.4/
For a contingency fee contract to be enforceable, the attorney must ensure compliance with certain safeguards.
California Business and Professions Code section 6147 is designed to protect clients by requiring, among other
things, that: (a) the agreement be in writing with a signed duplicate original provided to the client; (b) the client be
notified that the fee is negotiable; and (c) the client be notified of the percentage fee as well as the manner in which
costs and disbursements will affect the size of the fee and the client’s recovery.5/ In addition to statutory regulation
of attorney fee contracts, contingent fees are governed by rule 4-2006/, which states that an attorney may not charge
an unconscionable fee.7/
II. Charging Liens
A charging lien, as defined by the California Supreme Court in Fletcher v. Davis (2004) 33 Cal.4th 61, 66 [14
Cal.Rptr.3d 58], is a lien “created upon the fund or judgment the attorney recovers for compensation in recovering
the fund or judgment.” In our factual setting, the contractual lien created by Attorney’s contingency fee agreement
with Client is a “charging lien.”
Charging liens may be used to secure either contingent or hourly fees (Cetenko v. United California Bank (1982) 30
Cal.3d 528, 531-32 [179 Cal.Rptr. 902]), thereby creating a “security interest” in the proceeds of the litigation.
(Fletcher v. Davis, supra, 33 Cal. 4th at 67, citing Isrin v. Superior Court (1965) 63 Cal.2d. 153, 158 [45 Cal.Rptr.
320].) The lien may be express or implied as use of the word “lien” is not required so long as the parties manifest an
intent for the attorney to look to the client’s recovery as the source of the attorney’s fee. (Isrin v. Superior Court,
supra, 63 Cal.2d 153, 157 [45 Cal.Rptr. 320].)8/
3/ See, e.g., the report prepared by the ABA Task Force on Contingent Fees posted at:
www.abanet.org/tips/contingent/MedMalReport092004DCW2.pdf
4/ See ABA Model Rule 1.5 (c) [“A fee may be contingent on the outcome of the matter for which the service is
rendered, except in a matter in which a contingent fee is prohibited by paragraph (d) or other law”] and 1.8 (i) [“A
lawyer shall not acquire a proprietary interest in the cause of action or subject matter of litigation the lawyer is
conducting for a client, except that the lawyer may: . . . (2) contract with a client for a reasonable contingent fee in a
civil case.”] The ABA Model Rules are not binding but may be looked to for guidance when they do not conflict
with California rules. (See, e.g., Cal. State Bar Formal Opinion No. 1983-71).
5/ Section 6147 is subject to certain exceptions not applicable to the facts we address. For instance, section 6147
does not apply to agreements for representation in workers’ compensation matters. Bus. & Prof. Code, § 6147, subd.
(c); Labor Code, § 4903, subd. (a).
6/ Unless otherwise indicated, all rule references are to the Rules of Professional Conduct of the State Bar of
California.
7/ See, e.g., Shaffer v. Superior Court (1995) 33 Cal.App.4th 993 [39 Cal.Rptr.2d 506]
8/ We note that while a charging lien in a contingency fee case is favored by public policy, a retaining lien in
which an attorney asserts the right to withhold the client file to secure payment of fees is not permitted in California.
Academy of California Optometrists (1975) 51 Cal.App.3d 999, 1003 [124 Cal.Rptr. 668] [while charging liens may
be freely created by contract, there is no authority permitting retaining or possessory liens on papers and personal
property of the client coming into the attorney’s possession].

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DISCUSSION
I. Fletcher v. Davis
In Fletcher v. Davis, supra, 33 Cal.4th 61 [14 Cal.Rptr.3d 58], the Supreme Court held that an attorney who wishes
to secure payment of hourly legal fees and costs of litigation by obtaining a charging lien must comply with rule 3-
300, which requires, among other things, that the attorney advise the client in writing that the client may seek the
advice of an independent lawyer and obtain the client’s consent in writing. The court held that a charging lien in an
hourly fee contract constitutes a security interest adverse to a client, thereby triggering the requirements of rule 3-
300.9/ In so holding, the Fletcher court noted that a charging lien was not inherent in the nature of an hourly fee
agreement and that it was reasonably foreseeable that the charging lien could significantly impair the client’s interest
by delaying payment of the recovery or proceeds until any dispute over the lien could be resolved. The Fletcher
court limited its holding to charging liens in hourly fee cases and expressly declined to address the issue we discuss
in this opinion, namely “whether rule 3-300 applies to a contingency fee arrangement coupled with a charging lien
on the client’s prospective recovery in the same proceeding.”10/
II. Court Interpretation of Rule 3-300 and Its Predecessors
Rule 3-300 was enacted in its present form in 1989. From 1975 to 1989, rule 5-101, the immediate predecessor to
rule 3-300, was in effect. Rule 5-101 was substantially similar in its wording to the current version of the rule.11/
From 1928 through 1975, rule 4 was in effect. Under rule 4, attorneys were absolutely prohibited from acquiring
any interest adverse to a client: “A member of the State Bar shall not acquire an interest adverse to a client.” Thus,
until 1975, even fairness, notice, and an opportunity to consult with independent counsel and written consent did not
validate a transaction in which an attorney acquired an interest adverse to a client.
While rule 4 was in effect, absolutely prohibiting attorneys from acquiring any interest adverse to a client, the
Supreme Court upheld charging liens in contingent fee contracts. In Isrin v Superior Court, supra, 63 Cal.2d at 158-
159, the court wrote:
9/ Rule 3-300 provides: “A member shall not enter into a business transaction with a client; or knowingly acquire
an ownership, possessory, security, or other pecuniary interest adverse to a client, unless each of the following
requirements has been satisfied:
1. The transaction or acquisition and its terms are fair and reasonable to the client and are fully disclosed and
transmitted in writing to the client in a manner which should reasonably have been understood by the client;
and
2. The client is advised in writing that the client may seek the advice of an independent lawyer of the client's
choice and is given a reasonable opportunity to seek that advice; and
3. The client thereafter consents in writing to the terms of the transaction or the terms of the acquisition.”
The official Discussion following rule 3-300 states that: “Rule 3-300 is not intended to apply to the agreement by
which the member is retained by the client, unless the agreement confers on the member an ownership, possessory,
security or other pecuniary interest adverse to the client.”
10/ Id. fn. 3 at p. 70.
11/ Rule 5-101 was thus applicable only when an attorney entered into a business transaction with a client or
knowingly acquired an ownership, possessory, security, or other pecuniary interest adverse to a client. Like rule 3-
300, it required fair and reasonable terms, notice to the client of the right and opportunity to consult with
independent counsel, and written consent.

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[I]n whatever terms one characterizes an attorney’s lien under a contingent fee contract, it is no more
than a security interest in the proceeds of the litigation. . . [T]he attorney’s lien is ‘an equitable right to
have the fees and costs due to him for services in a suit secured to him out of the judgment or recovery
in the particular action, the attorney to the extent of such services being regarded as an equitable
assignee of the judgment. It is based, as in the case of a lien proper, on the natural equity that a party
should not be allowed to appropriate the whole of a judgment in his favor without paying for the
services of his attorney in obtaining such judgment . . .’ [C]ontingent fee contracts ‘do not operate to
transfer a part of the cause of action to the attorney but only give him a lien upon his client’s
recovery.12/
Likewise, Los Angeles County Bar Association Formal Opinion No. 496 (1998) noted that: “A contingent fee
coupled with a lien against the client’s recovery in the same matter in which legal services are being provided has
never been held to require compliance with the terms of rule 3-300.” Similarly, San Francisco Bar Association
Formal Opinion No. 1997-113/ stated that rule 3-300 was inapplicable to a standard charging lien in a contingency
fee contract.14/
As noted in The Law of Lawyering, charging liens in contingency fee contracts are recognized as “almost universally
permitted” and have been “historically uncontroversial.” (Hazard & Hodes, The Law of Lawyering (2004 Supp.)
§8.23, p. 8-56.2, §12.21, p. 12-59.) The authors point out that charging liens constitute “sound policy, for without . .
. [them] a lawyer might find it necessary to take other protective measures during the representation, or to be more
cautious about investing time or advancing costs. Thus, by offering the lawyer reasonable assurance in collecting
fees and advances, liens . . . may actually better serve the client’s interests, by eliminating a potential source of
friction.” (Ibid.; emphasis in original.)15/
12/ See also, Haupt v. Charlie’s Kosher Market (1941) 17 Cal.2d 843, 844 [121 P.2d 627]; Bartlett v. Pacific
National Bank (1952) 110 Cal.App.2d 683, 689; Jones v. Martin (1953) 41 Cal.2d 23 [256 P.2d 905]; Cetenko v.
United California Bank, supra,, 30 Cal.3d 528; and Epstein v. Abrams (1997) 57 Cal.App.4th 1159 [67 Cal.Rptr.2d
555].
13/ As to charging liens in hourly fee agreements, the Committee recognizes that reliance on Los Angeles Formal
Op. No. 496 (1998) and Bar Association of San Francisco Op. No. 1997-1 is no longer appropriate in light of
Fletcher; however, the Supreme Court in Fletcher reserved the issue of rule 3-300 compliance for charging liens in
contingency fee agreements and the Committee looks to these opinions to inform our analysis of that issue.
14/ No court has applied rule 3-300 or one of its predecessors to a charging lien in a contingency fee case. Rather,
the rule has only been applied in the context of an initial attorney-client fee agreement when the risks assumed by
the client were not inherent in the nature of the agreement. (See, e.g., Ames v. State Bar (1973) 8 Cal.3d 910, 917-
919 [106 Cal.Rptr. 489] [the attorney’s acquisition of a note secured by a first deed of trust was deemed an “adverse
interest” to the client’s second deed of trust against the same property prohibited by former rule 4 because the
attorney could summarily extinguish the client’s junior lien]; Silver v. State Bar (1970) 13 Cal.3d 134, 139-140 [117
Cal.Rptr. 821] [an attorney’s decision to levy on his own writ for fees against the client’s ex-husband instead of
levying on his client’s writ for her judgment against her ex-husband violated rule 4]; Hawk v State Bar (1988) 45
Cal.3d 589 [247 Cal.Rptr. 594] [an attorney who obtained a note secured by a deed of trust against the client’s real
property that could be summarily extinguished obtained an adverse interest in violation of former rule 5-101];
Fletcher v. Davis, supra, 33 Cal.4th 61 [a charging lien contains risks to the client that are not inherent, or common,
in hourly fee agreements].)
15/ See also: (a) ABA Model Rule 1.8(i)(1) specifically authorizing lawyers to “acquire a lien authorized by law
to secure the lawyer’s fee or expenses;” (b) Restatement of the Law Governing Lawyers, Third §§ 36(1), 43(2)
(Official Draft 2000) stating that lawyers may contract with their clients for contingent fees and use liens to secure
their fees and expenses; and (c) ABA Standing Committee on Ethics and Professional Responsibility Formal
Opinion 02-427, “As indicated by Comment [16], it is the intent of Rule 1.8(i) to permit a contractual lien in the
subject of litigation to be acquired independently of Rule 1.8(a), as long as acquiring such a lien is not inconsistent
with an applicable statute or rule.”

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Los Angeles County Bar Association Formal Opinion No. 416 (1983) reflects the difference between a charging
lien, which applies to funds the attorney will recover for the client, and other types of security interests. In Opinion
416, the Los Angeles committee addressed a fee payable to new counsel entirely out of proceeds to be realized from
a judgment another lawyer had previously obtained for the client. The committee opined that the fee arrangement
would be permissible provided there was compliance with former rule 5-101. The distinction between that fact
pattern and the one we consider in this opinion is that in that fact pattern the security for the attorney’s fee was not a
fund recovered for the client through the lawyer’s efforts, but rather was a separately created fund the client owned
before the attorney was retained.
III. Differentiating between Charging Liens in Hourly Fee Contracts and Contingency Fee Contracts
Because the Supreme Court determined in Fletcher that charging liens in hourly fee contracts are a security interest
adverse to the client, thereby triggering rule 3-300, the Committee has considered whether the policy considerations
underlying that decision should lead to the conclusion that rule 3-300 also applies to charging liens in contingency
fee contracts. The Committee believes that material differences between hourly and contingency fee contracts
require a different analysis and lead to a different result.16/
The Fletcher court’s opinion that charging liens in hourly fee contracts are adverse to the client was based in large
part upon a finding that charging liens impose risks and consequences that can impair the client’s interest by
delaying payment of the recovery until any dispute over the lien can be resolved. While the delay in payment to the
client referenced by the Fletcher court can occur in the contingency fee context as well,17/ the Committee believes
that substantial public policy considerations support the limitation of the court’s holding to charging liens in hourly
fee contracts.
First and foremost, a charging lien is an equitable corollary to, and thus inherent in, a contingency fee contract
because, unlike the situation in hourly fee arrangements: (a) the attorney and client have agreed that the attorney’s
fee will be limited to a percentage of, and derived only from, a successful recovery created by the attorney’s work;
(b) the attorney and client share the risk of a recovery; (c) any fee the attorney earns or receives is delayed until the
client obtains a recovery, usually at the very end of the representation; and (d) the recovery often represents the only
source of funds from which the attorney can ever be paid. For these reasons, charging liens are not only inherent in
contingency fee contracts, they are almost universally found and almost universally uncontroversial in such
contracts. By contrast, charging liens are neither inherent, nor common, in hourly fee agreements where: (a) there is
no condition or limit on the fee in relation to the recovery; (b) the client bears the full financial risk of the costs of
the representation; (c) the attorney may protect his or her right to be paid as agreed by requiring deposits or
advances against fees as well as through pay-as-you-go arrangements; and (d) a breach of the agreement by the
client to keep current on fees owed to the attorney provides grounds for permissive withdrawal.18/
16/ We do not address any fact pattern other than a straight contingency fee agreement with a charging lien. For
example, we do not address the applicability of rule 3-300 to charging liens in hybrid hourly/contingency fee
arrangements.
17/ We do not address the duties of discharged attorneys with respect to enforcement of charging liens. We note,
however, that even after discharge “attorneys continue to owe a fiduciary duty of utmost good faith and fair dealing
with respect to, at least, the subject matter of . . . [the] prior representation, including . . . [the attorney’s] express lien
for his attorney’s fees.” (In the Matter of Feldsott (Rev. Dept. 1997) 3 Cal. State Bar Ct. Rptr. 754, 757 [An attorney
with a charging lien did not breach his duty to his former client by failing to endorse the settlement check where the
attorney offered reasonable options to release the undisputed portion of the recovery to the client and the client
refused.].)
18/ Cazares v. Saenz (1989) 208 Cal.App.3d 279, 287-288 [256 Cal.Rptr. 209]; Isrin v. Superior Court, supra, 63
Cal.2d at 158-159; Epstein v. Abrams, supra, 57 Cal.App.4th at 1170; rule 3-700(c)(1)(f).

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Second, because hourly fees are not in any way limited in relation to the client’s recovery, a charging lien for fees in
an hourly fee context can readily tie up the entire recovery pending resolution of a fee dispute between the attorney
and client. That situation is distinguishable from a contingency fee contract where the charging lien for fees is
limited to the previously agreed upon percentage of the attorney’s recovery. The contingency fee client is therefore
protected by requirements that the fee be: (a) “decisive as to its existence and amount;”19/ (b) subject to negotiation
between the attorney and the client;20/ and (c) limited in amount by common law principles governing
unconscionable fees as well as rule 4-200.21/ The Committee is mindful that in some contingency fee cases, costs
advanced by the attorney can approach the amount of the recovery, so that a lien for fees and costs in a contingency
case can approach the client’s entire recovery. However, even in contingency fee cases, attorneys can contract with
their clients to require payment of all or a portion of the costs independent of any recovery. Moreover, with regard
to costs, the client is protected by the terms of Business & Professions Code section 6147 which requires the
attorney to include in the written fee agreement [a] statement as to how disbursements and costs incurred in
connection with the prosecution or settlement of the claim will affect the contingency fee and the client’s recovery.”
Third, at issue in Fletcher was the fact that the hourly fee agreement between the attorney and the corporate client
was oral.22/ The court therefore stated the issue before it as: “When an attorney wishes to secure payment of hourly
legal fees and costs of litigation by obtaining a charging lien against a client’s future recovery, must the attorney
obtain the client’s consent in writing?”23/ Absent application of rule 3-300, there was no statutory or rule-based
requirement that the charging lien be in writing. In contingency fee contracts, on the other hand, Business and
Professions Code section 6147 provides an independent statutory basis, other than application of rule 3-300, that
requires all such agreements (other than in workers’ compensation matters and in claims between merchants)24/ be in
writing.
Finally, if a client with a contingency fee contract were induced by a rule 3-300 disclosure to consult independent
counsel about the charging lien before agreeing to it, the independent lawyer would likely confirm that charging
liens are universally included in contingent fee contracts, that their inclusion in such contracts has consistently been
upheld by the courts, and that the client would be hard pressed to find a competent lawyer to take a case on a
contingency fee basis without a charging lien. Thus, the client would have consulted with an independent lawyer,
quite possibly for a fee, only to learn there was little reason to do so. The client’s interests are adequately protected
by the attorney’s compliance with Business and Professions Code section 6147, rule 4-200, and other statutes, rules,
and case law governing the attorney’s duties in this context. Requiring compliance with rule 3-300 in contingency
fee contracts would cause clients to seek independent consultations without any discernible benefit.
While the Committee has concluded that rule 3-300 does not apply to charging liens in contingency fee contracts,
members are reminded that this opinion is advisory only and not binding. No appellate court has addressed this
specific issue since the Supreme Court’s ruling in Fletcher v. Davis, supra, 33 Cal.4th 61. Accordingly, in order to
protect themselves from the potential risk that a court may disagree with the Committee’s position, members of the
State Bar entering into contingency fee agreements with their clients may wish to consult the sample forms of fee
19/ Haupt v. Charlie’s Kosher Market, supra, 17 Cal. 2d.at p. 945; Bus. & Prof. Code, § 6147, subd. (a)(1) and (2).
20/ Bus. & Prof. Code, § 6147, subd. (a)(4).
21/ See, e.g., Jackson v. Campbell (1932) 215 Cal. 103 [8 P.2d 845] [“If it had been contemplated that defendant
should receive two thirty-five percent fees, or a total of seventy percent, for his services in trial and appellate courts,
the contract should have so stipulated, although a provision for any such grossly excessive compensation in this case
would have been so unconscionable as to raise the question of its enforceability.”]
22/ Although oral, the fee agreement was enforceable because the client was a corporation. Bus. & Prof. Code, §
6148, subd. (d)(4).
23/ Fletcher v. Davis, supra, 33 Cal.4th at p. 64.
24/ Bus. & Prof. Code, §§ 6147, subd. (c) and 6147.5.

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agreements prepared by the Standing Committee on Mandatory Fee Arbitration of the State Bar of California. That
committee has published an optional lien provision in the sample forms for contingency retainers that is designed to
comply with rule 3-300.25/ (The Sample Written Fee Agreements are posted at:
www.calbar.ca.gov/calbar/pdfs/MFA/Sample-Fee-Agreement-Forms.pdf )
CONCLUSION
The inclusion of a charging lien in the initial contingency fee agreement does not create an “adverse interest” to the
client within the meaning of rule 3-300 of the California Rules of Professional Conduct.
This opinion is issued by the Standing Committee on Professional Responsibility and Conduct of the State Bar of
California. It is advisory only. It is not binding upon the courts, the State Bar of California, its Board of Governors,
any persons or tribunals charged with regulatory responsibilities, or any member of the State Bar.
25/ In the instructions for the sample fee agreement forms, the Standing Committee on Mandatory Fee Arbitration
of the State Bar of California makes the following observation concerning compliance with Fletcher in using its
optional fee agreement clause:
This is an optional clause, but is recommended for the attorney's protection. The California
Supreme Court has determined that a lien in an hourly fee case gives the attorney an interest
adverse to the client, and therefore the attorney must comply with Rule 3-300 of the Rules of
Professional Conduct by fully disclosing the acquisition and terms of the lien and transmitting that
information to the client in writing in a manner which should reasonably be understood by the
client, advising the client in writing that the client may seek the advice of an independent lawyer
of the client's choice, and giving the client a reasonable opportunity to seek that advice before the
client gives written consent to the lien. The Supreme Court left open whether the same
requirements must be met for a valid lien in a contingent fee case, but caution dictates that the
same procedure be followed. (Sample Written Fee Agreements at p. 7.)

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